This is how it's done in most other countries.
E.g. in Finland employers deduct taxes directly from salaries. Also some capital gains taxes are directly deducted by banks etc, or at least the income is reported to the tax office. Yearly the tax office sends a prefilled report based on these. If you are fine with it, you don't have to do anything. If you want to add e.g. deductions, you add them on the tax office's website and it calculates the new report.
I've been getting taxable incomes for 25 years or so and I have never had to do any tax reporting.
Schedule C (self-employment), which is a schedule you attach to your personal income tax return vs a business tax return (different depending on the type of business and what they're reporting) filed by the business.
Itemizing deductions (Schedule A) vs reporting/deducting expenses as part of a Schedule C as required by the IRS.
If you don't fall in that bucket or run a business, you tell them those things and send back the corrections form.
Gemini says 90% of the American workforce are employees.
They don't know your business income either of course and you do have to declare that, but most people have only income as an employee and they do know that figure, so most people don't need to "file" anything here. It's all automatic.
When you're buying an item you declare you need an invoice on it and punch in your tax id.
Later, when you're filling your monthly taxes, you include that invoice in an XML file (plenty of generators available along with the free government-issued one), sign it with your digital ID and send that to the Ministry of Finance servers (MF servers for short). The MF servers then compare your entry to what all the people that sold you stuff entered.
This exists largely to prevent VAT manipulation, but at the same time gives all involved parties a clear, regular indicator that everything is fine in terms of taxes.
I'm a contractor and do this little dance every month using an accounting SaaS.
It’s an extremely successful business in that it does things to ensure more profit can be made.
Healthcare, education, defence contracts, tax collection, etc etc.
The goal is to make more money for some company.
FWIW I think the "money is speech" is actually a bit of a distraction. What we really need is wholesale reform to corporate/LLC law. Corpos are not mere groups of people exercising their individual rights, but government-created liability shields. Thus it makes perfect sense to regulate them to prevent obvious mechanisms of harm that leave others holding the bag. The vaunted "man in the arena" needing minimal regulation can actually get into that arena with a sole proprietorship or general partnership. (which is exactly where most small businesses actually are, regardless of any LLC filings)
The fines for wrongdoing are so tiny the incentives are to always do bad stuff and just pay the fines - that’s how to maximize profit and there’s no downside.
https://priceonomics.com/the-stanford-professor-who-fought-t...
It's republicans. Republicans are against making taxes simpler to individuals because, and they have explicitly said this, they want taxes to hurt so that Americans will be more likely to vote for tax reduction.
I'm sure some democrats get a few thousand from Intuit somewhere but at the end of the day, it's republicans voting down things like free file and the government's digital initiatives and refusing to let the US gov do your taxes for you.
It's frustrating how often people in the US blame "the government" instead of the very specific subset of that government that they keep voting for that objectively and openly and loudly do things that harm them.
More recently, Elon Musk was publicly proposing a mobile app for making filing taxes easier (See https://www.fox26houston.com/news/doge-tax-filing-app), but then once part of the Trump administration, they happily killed Direct File, a program to do exactly that.
How would the government be able to know the income and deductions for small businesses? And in the USA at least lots of people have small businesses (cleaning businesses, landscaping, sub-contracting in construction industry, mowing lawns, consulting gigs, Uber/Lyft drivers, etc...)
Determine the amount of average deductions for small businesses, benchmark against however much money you want to extract from small businesses, then give all small businesses a blanket standard deduction.
It really has very little to do with TurboTax lobbying, but that’s a framing that sells.
Does the IRS get a form when a child is born or dies?
You could say, yes, the IRS should keep tabs on all this life activity, but that seems pretty gross.
How is it gross for the IRS to know that when you have to tell them anyway to get the associated tax adjustment?
You'd just report it the year that it starts to apply, and then your future filings would have that accounted for.
I don’t know the % of Americans each year who have a tax-related event that isn’t already reported to the IRS, but given something like the complex eligibility rules for the widely-used EITC, or the number of folks paying back college loans, I’m comfortable saying it’s much higher than 10%.
A ton of tax law is premised on who lived where for how long to determine primary residence. Many citizens—especially poorer ones—move a lot. The IRS should build reporting mechanisms to keep tabs on where everyone lives month-to-month?
You can either simplify the tax code dramatically or increase massively the amount of preemptive reporting to the IRS. Otherwise this idea of the IRS divining the typical American’s tax obligations is unworkable.
There's no reason that for most people in most circumstances couldn't have their taxes done automatically most years. Exceptions will always be the rule and our current processes handle them. That does not in any way exclude the usual cases.
I know people who mess it up every year and the government just sends the forms back corrected. In fact they started treating the government like a tax prep service. Do people actually get in trouble for this?
Unless they willingly and provingly try to grift IRS on a continuous basis, no, people don't get in trouble for this.
If you mess something up or underpay on your taxes, and if (or when) IRS detects it, they will send you a letter explaining their concerns and provide you with remediation options (as well as an opportunity to dispute, of course). The remediation options provided by IRS typically include both "pay it now and we will go away as if it never happened" and "talk to us, and we can work out a payment plan with you (in case you aren't able to cover at the moment)".
So no, IRS isn't some boogeyman that is gonna get you in trouble over a mistake. If they catch a mistake, they will work with you to remediate it, and their terms are typically extremely reasonable, and have zero negative consequences for utilizing them (unless you are, beyond any reasonable doubt, trying to defraud them or refuse to cooperate entirely).
Happened to my parents recently
Your parents must have defaulted on the plan, not filed taxes or otherwise broken a rule. Because once a plan is set up, the IRS is forbidden from seizing assets unless something rare like the previous happens.
Mostly because of:
> TurboTax’s 20-year fight to stop Americans from filing taxes for free
For taxes, how is the government supposed to know about the work you did in exchange for cash? Or make a difference between a vacation and a tax destructible business trip. They will sometimes look into it if they suspect fraud, but they have no way of knowing exactly what you owe beforehand, and that's a good thing, surveillance is as bad as it is right now, not mentioning the costs.
The best they can do, and that's how it is done in most countries, is to tell you "according to what we know, you owe us XXX", but it only works in the simple cases, like for those whose only income is their salary. If they missed something and their estimation is wrong, you must declare it or you can be in trouble. It is just a convenience, you still need to do your taxes correctly and you are responsible for it.
One may argue the rules could be simpler, but they are complex because the world is complex, and even small changes can make or break industries.
So the IRS has correlative algorithms to signal an audit if something looks strange. But besides that, you are evaluating your real world activity and classifying it according to the forms they have.
This is why accountants and lawyers are useful in tax. They can help you interpret the tax code and argue to the IRS your interpretation,
- how much of the year your wife are kids are living with you? - whether you took college courses? - how much you put into your IRA? - which purchases count as medical expenses? - the cost basis of the stock you sold?
but people do care and so they are willing to pay $60 for tax help
But I think when you understand tax policy you think and act differently in regards to financial decision. So outsourcing it reduces insight into think that perhaps most impacts middle class finances besides job.
They can make a likely guess (the full year), and you tell them if they're wrong.
> whether you took college courses?
Yes, your college files Form 1098-T to tell the IRS this.
> how much you put into your IRA?
Yes, your IRA custodian (your bank) files Form 5498 to tell the IRS this.
> which purchases count as medical expenses?
Very few people spend enough on medical expenses to take a deduction for them. They have to exceed 7.5% of your AGI.
> the cost basis of the stock you sold?
Yes, your brokerage files Form 1099-B to tell the IRS this. There are only a few rare cases where they won't be able to report a cost basis.
I don't think anyone is saying "All taxes should be automatically calculated to the final numbers" -- just that for instance, when I filed last year with a spouse and 2 kids, a default calculation could be done this year that assumes an unchanged household.
And anyway, just as TurboTax does, the IRS could maintain a simple fact database for you for you to sign in and indicate what SSNs are part of your household, with the bonus that it would detect a duplicate claim for the same kid up front and show you that someone else (e.g. your ex) is claiming them and that you should get them to remove them to avoid both your returns being incorrect. The complexity for a taxpayer of signing in to IRS to manage household members, address, etc. with IRS is an order of magnitude less than that of tax prep they have to do today.
It seems their real use is to provide a paper trail for audit should they choose to.
If I disagree, I can add/remove/update it. If I agree, I just file
Asking me to collect those documents and reports the different numbers into a form, is not efficient, error prone and time/money consuming.
Exactly. That’s why they want you to do it and not them.
It's marginally more work for them to tell you the results of their math. And compared to how many people file taxes it's a net benefit for society. Collectively paying a small group of people to do something for the benefit of many is like the whole point of government.
I don’t know that for sure that.
The could send 100% of people a bill that you either pay or file tax forms to replace.
Just because you personally disagree with something doesn't mean that it's a ridiculous lie.
Edit: Yep, 2017 was the last year the 1040ez was around, and the regular 1040 went from 74 lines that year to 18 the following year. The 1040ez for 2017 was 12 lines.
There used to be a libertarian wing that thought paying taxes should be a little painful so people wouldn't vote for more taxes, but I've not heard anyone say that since the bush era.
So much for the "drown the government in the bathtub" talk - turns out it was always just about the rich not paying more.
That said he’s not and never was a libertarian.
Each year, you should file an extension and then wait for your IRS to publish its transcript (in May I believe) that shows all the wage/income and other info the IRS has on you.
Outside the Overton Window, why are individuals taxed rather than businesses?
There was a time when the government had no business knowing the financial affairs of the citizens, but then some kings got the idea that they could tax everyone to pay for their wars. Nowadays we assume tax paying is good and socially responsible, with only tax-dodging scum not wanting to pay their taxes.
Due to tax havens and whatnot, for a company to compete and be successful, some tax avoidance is needed. So we have every corporation opting out of paying taxes. Consequently, taxation is for the citizens, not the corporations.
Companies have accountants and bookkeepers. Individuals don't unless they are seriously wealthy. As I see it, it would make much more sense to just tax companies and not individuals. Think of the amount of time that would be saved, particularly if VAT is a tax, which it isn't in America.
I have to say that the American tax system sounds like hell, compared to what we have in the UK.
Sure, but taxes are applied due to political feasibility, not because they "make sense".
The most sensible approach is to tax natural resources (land, carbon, mines, wells, electromagnetic spectrum) and other forms of economic rent, but that is politically infeasible (edit: or more accurately, very challenging) in a capitalist democracy.
From an economic standpoint, the most "sensible" (i.e. most efficient and least distortionary) tax is one that relies primarily on natural resources and other forms of economic rent instead of taxing labor, businesses, non-land property, wealth, or the creation of value. However, these rent-based taxes would need to be set very high to fully replace income, corporate, payroll, sales, property, VAT, wealth, estate, etc taxes.
Switching to such a system would be painful for people whose net worth is disproportionately invested in land or who consume significant resources relative to their income. If the majority of the population fall into this category (as is not uncommon in capitalist democracies) then such taxes would be broadly unpopular, making them politically infeasible.
It’s more accurate to say it it’s politically infeasible in our capitalist oligarchy.
Just because this is the way our society works now, we shouldn’t be duped into thinking this is the natural order of things. It’s not. A democratic society with a free market economy could work very differently.
But I'm not sure I agree that the difficulty is due to being an oligarchy. In a democracy where the majority of citizens have the majority of their capital tied up in land (as is the case in the US and many capitalist democracies), shifting the tax burden onto land seems like it would be broadly unpopular.
I do agree with your main point though that a democratic society with a free market economy could work very differently, it's really the transition that would be broadly unpopular, and therefore politically difficult in a democracy.
The big question to me is, why do we tax production rather than consumption? We shouldn't have income taxes at all. We should have sales taxes. Make basic necessities like food exempt.
The people who maintain the infrastructure which enables you to have that money.
Commodity pricing may contribute to inflation over time. But commodity prices go down, whereas currency tends to move in one direction until the civilization backing it collapses, or the specie changes.
It's true, though, that on average, rich people consume less of their income than poor people, because they save or invest a portion of it instead, simply because they can. That's a good thing. Our current tax system discourages people from saving and investing, and encourages them to consume. Then something bad happens and we wonder why there's nothing saved to tide us over.
Exempting basic necessities from sales tax is how you prevent it from putting too much of a burden on poor people; most of what they consume is going to be basic necessities (or at least it should be, if they're rational), so it wouldn't be taxed.
No, it would incentivize investing, since if you just leave money sitting under a mattress, it loses buying power over time because of inflation.
> the economy works better when people spend money
The economy works better when people create wealth through cooperation, specialization, and trade. Taxing production reduces the incentive for people to do that.
It requires people to not consume; any money that is put towards investment is not put towards consumption.
Sure. But they aren't consumption. The whole point of investing is to forgo consumption now in order to put those resources to use for something else, something that will improve the situation in the future. That's where the returns on the investment come from.
And it might be good to try and limit accumulation even if the accumulation doesn't have real economic effects; it can still create resentment or bestow power.
Um, what? It requires huge government agencies, a ton of impenetrable regulations, and a lot of bother for people who have to file.
Whereas we already have a much simpler system for assessing sales tax whenever people make purchases.
Because rich people would find ways for all their income to be realized by businesses they control, resulting in zero personal tax liability.
> particularly if VAT is a tax, which it isn't in America
America has sales tax, which is functionally the same as VAT. It's levied at the state level, and some states have a zero rate at present. We also have high import tariffs now, which again work like VAT.
> I have to say that the American tax system sounds like hell, compared to what we have in the UK.
True.
Anyways, something something Georgism something something.
So of course it doesn't work. Also plausible deniability, if you overpay, rarely will the gov give you back what you give them, and if they do, it's months afterwards.
This is precisely how it works in both EU countries in which I've lived.